Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
So what: The deal between the nation's No. 2 and No. 3 tobacco companies had been expected for weeks, so shares of Lorillard, the No. 3 producer, had already been bid up. Reynolds American agreed to purchase Lorillard for $68.88 per share but will spin off some key brands, including blu, the leading e-cigarette brand. Kool, Salem, and Winston will also be sold to the Imperial Tobacco Group. Still, investors didn't seem to like the blu divestiture, as shares of Reynolds American also dropped 6.9% on the news.
Now what: While the $68 purchase was slightly higher than Lorillard's closing price last night, most analysts had expected the sale to be for over $70 a share. Reynolds also seems to believe its Vuse brand of e-cig has better technology, and sales of blu have declined sequentially in recent quarters. The blu sale also makes the deal more likely to pass antitrust merger. Finally, the acquisition makes clear the few growth opportunites left in tobacco, which are mainly e-cigs, which is a small market, and menthols, which Lorillard dominates with its Newport brand. For a dividend play, these stocks are solid, but I'd expect growth to only get tougher going forward.
Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.